There’s a boom of startups in Southeast Asia. Of course, as promising ventures emerge from across the diverse region, the promise of high returns entices investors in droves. Not everyone will have a front-row seat to this heady world. Enter the accredited investor.
Imagine the startup scene to be a vibrant market. Imagine the startup scene as a vibrant marketplace. Accredited investors are the VIPs with exclusive access to the most promising stalls. They have proven their financial muscle and are allowed to explore the full spectrum of investment opportunities. But why this exclusivity? Let’s dive in
What is an Accredited Investor?
Basically, an accredited investor is a type of investor with sufficient financial muscle to sustain potential losses that might arise from an investment in a startup. Such an investor has passed some kind of financial fitness test to prove that they can stand the ups and downs of a startup.
Why the fuss? Well, startups are inherently risky. By making sure that investors are on solid financial ground, regulators protect people from losing more than they can afford. While accredited investors enjoy exclusive access to high-potential investments, it’s essential to understand that they also carry specific responsibilities.
- Due Diligence: Accredited investors are expected to conduct thorough research before investing in securities. That includes knowledge of the company’s business model, its financial health, and market potential.
- Risk Tolerance: Because of the type of investments that accredited investors have access to, they must be able to tolerate considerable risk. Most of these investments are early stage companies or involve complex financial instruments.
- Investment Sophistication: An accredited investor is presumed to possess solid financial knowledge and/or experience, which helps him in making an informed investment decision.
- Adherence to Regulations: Investors must comply with securities laws and regulations, including the requirements for reporting and making disclosures.
An accredited investor does not have the luxury to be a couch-potato! It requires a great deal of participation and in-depth knowledge of the investment terrain.
How to Become an Accredited Investor in Southeast Asia?
From startups to private equity funds, becoming an accredited investor can unlock a full range of investment opportunities for you. An accredited investor is somebody who has demonstrated financial capacity and sophistication. Most of the time, an accredited investor is the person who has met at least one of the following thresholds:
- Income: You should have earned a substantial amount of money over the past few years. In Singapore, your individual income must exceed S$300,000 in the preceding 12 months.
- Net worth: You need to have a certain amount of wealth. In Singapore, your net personal assets must exceed S$2 million, excluding your primary residence.
- Professional: You must have specific financial certifications or designations. Unlike some jurisdictions, Singapore doesn’t require specific professional qualifications to be an accredited investor.
That said, these issues are regulated at the national level, so you must check with the specific legislation in your country.
Relation of Accredited Investors with Startups
Having accredited investors on board is great, but there can be a few setbacks too. On one hand, if you’re only looking to bring aboard accredited investors it limits the potential pool of investors, making it more difficult to raise money. On the other, it attracts experienced investors who are bringing in not only money, but also valuable advice and connections.
Not Accredited? That’s Okay!
If you’re not an accredited investor, don’t lose hope. There are ways to get involved:
- Angel syndicates: Pooling resources with other investors can help you reach the required investment threshold.
- Crowdfunding platforms: There are some platforms which facilitate startup funding with non-accredited investors.
- Equity Crowdfunding: This model democratises access to startup investments by allowing smaller investments from a broader pool of investors.
The Future of Accredited Investing
The startup world is evolving constantly, and so are the rules around investing in them. There’s a growing push to make investing more accessible, including discussions about changing the accredited investor criteria.
While the concept of accredited investors is here to stay for now, it’s likely to evolve as the startup ecosystem matures.
Do All Investors Need to Be Accredited in a Fund?
This is a great question. The short answer is: it depends.
Venture Capital Funds: Typically, yes, all investors in a venture capital fund need to be accredited. This is due to the high-risk nature of the investments and the complex regulatory environment.
Angel Funds: The rules are more flexible. While some angel funds may require that all investors must be accredited, some others have both kinds of investors: some accredited and some not.
Ultimately, the decision about who can invest in a fund rests with the fund managers. They must comply with the relevant regulations in their jurisdiction.
The accredited investor framework is a complex issue with implications for both startups and investors. While it’s designed to protect investors, it can also limit access to capital for startups. Understanding the rules and exploring alternative investment options is crucial for anyone looking to participate in the startup ecosystem.
